Balkan Economies Recovering

NewsSouth-East European INDUSTRIAL Мarket - issue 1/2014

The South East Europe region exited recession in the first half of 2013, led by strong growth in exports, a recent report by the World Bank says. The document notes good weather supported a strong contribution in terms of agricultural output to economic growth and weakened inflationary pressures. On the downside, the domestic demand remained depressed across the region, reflecting high unemployment, sluggish growth in household income and credit, and a difficult investment climate.

Beyond these short-term factors, a slowdown in productivity growth and rising labour costs adversely affected growth, lowering competitiveness and demand for labour.
According to the South East Europe Regular Economic Report, SEE RER, average growth of real income of the six countries of the region rebounded from negative 0.7 per cent in 2012 to 1.8 per cent in the first half of 2013, supported by nascent recovery in the Eurozone.

Industry - especially manufacturing exports and energy - drove the recovery. The region experienced a welcome surge in exports in 2013, particularly car exports from Serbia.
According to the report, economic growth in 2013 in Albania will be 1.8 per cent, in Bosnia 0.8 per cent, Kosovo 3.0 per cent, Macedonia 2.5 per cent, Serbia 2 per cent and Montenegro 1.8 per cent of GDP.

Weighted real GDP of the six countries of the region is now expected to grow 1.8 per cent in 2014, about one percentage point less than the earlier, mid-2013 estimate.
The slowdown is driven by the Serbian economy, which is now expected to expand by only 1 percent in 2014 because of planned fiscal consolidation and a fall in private consumption.

"Unemployment in the region, at about 24 per cent on average, began to decline in the first half of 2013 from its peak crisis levels," Abebe Adugna, another co-author of the report, said.
"But even where employment has recovered meaningfully since 2010, the gains were not broad-based and were mostly concentrated in services," Adunga added.

According to Adunga, industry continued to shed jobs in 2013 throughout the region and the bank expects that near-term economic growth will still not be strong enough to support substantial gains in employment in the short run.

The World Bank notes that the gradual recovery in the euro area helped the combined weighted average goods exports in the region to grow by almost 13 percent compared with the previous year, making a strong positive contribution to overall economic growth.

Export growth picked up everywhere, especially in Serbia, propelled by new foreign direct investment-based export capacity, but the sustainability of such high export growth is uncertain in view of the region’s narrow export base and competitiveness issues.

Remittances also continued to be resilient, but the Greek crisis took its toll, especially on Albania.
With depressed demand, uncertain export prospects, and significant external risks, the short-term growth prospects for the six countries remain frail, according to the World Bank.

"The South East Europe countries need to continue to prioritize strengthening their domestic macroeconomic fundamentals and policies that boost their productivity and resilience to external turmoil," said Satu Kahkonen, Manager for macroeconomic and poverty reduction work in South East Europe for the World Bank. "The nascent export-led growth of 2013 is a positive development, but sustaining it will be a challenge," he added.

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